Only Losers Buy This Stock (According to Wall Street)

According to Wall Street, if you’re still buying the taxi app that revolutionized the term “designated driver” after bar hopping until 4am… well then you’re a loser. That’s right and yes I’m talking about Uber (NYSE:UBER). In fact, while you were busy arguing with your Uber driver about the fastest route, some high-profile investors and insiders have been selling their shares faster than most of us abandon our New Year's resolutions. But why?

Los Angeles Capital Bails Out

Well according to Los Angeles Capital Management LLC, it was simply time to just “lighten their load”. They sold off 387,536 shares of Uber Technologies, reducing their stake by a whopping 36.7% in the first quarter. This move left them with 669,822 shares, valued at a cool $51.57 million. Not exactly chump change, but still, it's a significant sell-off.

But they’re not the only ones. A bunch of other hedge funds and institutional investors have been tweaking their Uber portfolios. New stakes were purchased, small holdings were doubled, and some investors just decided to dip their toes in the Uber pool with a few hundred shares. It's like everyone’s at a party, but some folks are starting to sneak out the back door. 

Source: Business Insider 

Yet, despite the selling spree, Uber’s stock still has a few fans on Wall Street. Analysts are keeping their "buy" ratings steady, even if they’ve adjusted their price targets a bit. DA Davidson is holding strong with an $81 target, while Loop Capital trimmed theirs from $88 to $83. Oppenheimer and Needham & Company are also optimistic, with targets at $90. But still, it’s almost as if they’re saying, “Sure, there’s a storm coming, but it’s just a little drizzle.”

However, not everyone’s drinking the Kool-Aid… especially the insiders. Tony West, Uber’s Chief Legal Officer, led the charge when he decided to cash in some of his chips, selling 18,750 shares at an average price of $65.63 each. This netted him over $1.2 million. Not bad for a day’s work. CEO Dara Khosrowshahi also joined the party, offloading 500,000 shares for a cool $32.97 million. Again, not bad for riding on Travis Kalanick's coattails… but hey everyone’s got to eat. 

Source: CNBC 

Now this all comes out following Uber’s recent quarterly report. Which in itself was bit of a mixed bag. They posted a 15% revenue growth over the prior year, which sounds great until you see that their earnings per share missed analysts' expectations. The shortfall was mainly due to a non-operating, non-recurring expense related to equity investments in other companies. Basically, they tripped over their own shoelaces while running a pretty fast race.

On the bright side, Uber’s adjusted operating profits increased by over 80% from the previous year, and their free cash flow nearly doubled. Gross profit margins have been steady at around 40%, and operating expenses are growing at a slower rate, leading to positive operating profits. So, while the EPS miss was a bummer, the overall financial health isn’t too shabby.

Valuation Concerns and Industry Woes

But again, despite the positive financials, some billionaires are still cashing out. It could be that Uber’s valuation is getting a bit lofty. The stock has outperformed the S&P 500 and Nasdaq Composite over the past 12 months, with a 66% return. However, it has lagged year-to-date, and its valuation ratios are high but not outrageous. So, why the sell-off? Maybe these billionaires are just taking some gains off the table, like savvy poker players folding a decent hand to wait for a better one.

But there are also out of sight, out of mind concerns about Uber’s business model. The rideshare and food delivery industries are notoriously tough on profitability. Uber’s main competitors, DoorDash and Grubhub, struggle with profitability, and Lyft is perpetually in the red. Labor costs are another looming issue. Studies suggest that drivers often earn below minimum wage, and regulatory pressures could force Uber to treat drivers as employees, drastically altering the company’s economics.

But to being honest here, it more than likely has to do with the main elephant in the room: Regulations. 

Uber has been battling regulators over driver compensation and benefits for years. A recent federal ruling supported a driver-friendly law in California, potentially paving the way for similar legislation in other states. If Uber has to pay drivers more, their costs could skyrocket, and they might have to hike prices, which consumers may not be willing to pay. It’s like being stuck between a rock and a hard place—with the rock being labor costs and the hard place being customer prices.

Billionaires Playing the Long Game

Which makes sense as to why billionaire investors are selling off their Uber shares in order to stay ahead of the curve. Regulatory changes could pose significant challenges for Uber and its peers. Notably, investors like Lee Ainslie, Paul Tudor Jones, and Ken Fisher have also sold large quantities of Lyft and DoorDash shares. This suggests that the sell-off might be an industry-wide move rather than an Uber-specific one.

The Bottom Line

So, what does all this mean for us as investors? While Uber’s financial performance has been strong, the sell-off by insiders and billionaires indicates potential concerns about the company’s future. Regulatory challenges and a competitive market could complicate Uber’s path to sustained profitability.

In the end, if you’re looking to ride the Uber wave, just remember: the road ahead might be bumpy, and some of the passengers are already getting out. But hey, if you’re feeling lucky it just might be worth being a regard on Uber. 

Stocks.News does hold positions in Uber.